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Petty Cash Book

In every organisation, there will be a large number of small payments such as conveyance, cartage, postage, telegrams and other expenses (collectively recorded under miscellaneous expenses).These are generally repetitive in nature. If all these payments are handled by the cashier and are recorded in the main cash book, the procedure is found to be very cumbersome. The cashier may be overburdened and the cash book may become very bulky. In order to avoid this, large organisations normally appoint one more cashier (petty cashier) and maintain a separate cash book to record these transactions. Such a cash book maintained by petty cashier is called petty cash book.

 

Imprest system:
The petty cashier works on the Imprest system. In this system, a definite sum, say Rs. 2,000 is given to the petty cashier at the beginning of a certain period. This amount is called imprest amount. The petty cashier goes on making all small payments out of this imprest amount and when he has spent the substantial portion of the imprest amount say Rs.1, 780, he gets reimbursement of the amount spent from the head cashier. Thus, he again has the full imprest amount in the beginning of the next period. The reimbursement may be made on a weekly, fortnightly or monthly basis, depending on the frequency of small payments.

 

The petty cash book generally has a number of columns for the amount on the payment side (credit) besides the first other amount column. Each of the amount columns is allotted for items of specific payments, which are most common. The last amount column is designated as 'Miscellaneous' followed by a 'Remarks' column. In the miscellaneous column those payments are recorded for which a separate column does not exist. In the 'Remarks' the nature of payment is recorded. At the end of the period, all amount columns are totaled. The total amount column l shows the total amount spent and to be reimbursed. On the receipt (debit) side, there is only one amount column. Columns for the date, voucher number and particulars are common for both receipts and payments.

Advantages of Maintaining Petty Cash Book

  1. Saving of Time and efforts of chief cashier: It saves time and labour and helps chief cashier to discharge his duties more effectively.
  2. Effective control over cash disbursements: Cash control becomes easy and effective because of division of work. This way the chances of making frauds and embezzlements become very difficult.
  3. Convenient recording: Recording of petty disbursements in the main cash book makes it bulky and unmanageable. As the petty expenses are maintained in a separate book the cash book reveals only material and useful information.
Recording of such small payments becomes easy as the totals of different types of expenses are posted to ledger. It also saves time and effort of posting individual items in the ledger.

In nutshell it can be stated that preparation of petty cash book is a cost reduction control measure

Problem#3
Mr. Mohit, the petty cahier of M/s Samaira Traders received Rupees 2,000 on May 01, 2005 from the Head Cashier. For the month, details of petty expenses are listed here under:
 

Date

Details

Amount
Rs.

2005

May

   

02

Auto fare

55

03  

Courier services

40

04

Postal stamps

105

05

Erasers/Sharpeners/Pencils/Pads

225

06

Speed post charges

98

08

Taxi fare (Rs.105 + Rs.90)

195

08

Refreshments

85

10

Auto fare

60

12

Registered postal charges

42

13

Telegram

34

14

Cartage

25

16

Computer stationery

165

19

Bus fare

24

19

STD call charges

87

20

Office sanitation including disinfectant

(Rs. 36 + Rs. 24)

60

22

Refreshment

45

23

Photo stating charges

47

28

Courier services

40

29

Unloading charges

40

30

Bus fare

15

Posting from the Petty Cash Book

The petty cash book is balanced periodically. The difference between the total receipts and total payments is the balance with the petty cashier. The balance is carried to the next period and the petty cashier is paid the amount actually spent. A petty cash account is opened in the ledger. It is debited with the amount given to petty cashier. Each expense account is individually debited with the periodic total as per the respective column by writing “petty cash account” and the petty cash account is credited with the total expenditure incurred during the period by writing sundries as per petty cash book. The petty cash account is balanced. It reflect the actual cash with the petty cashier.

 

The petty cash book for the month will be prepared as follows:

 

Solution:

Books of Samaira Traders
 
Journal

Date

Particulars

L.F.

Debit

Amount

Rs.

Credit Amount

Rs.

2005

May 01

 

 

May 31

 

 

Petty cash A/c Dr.

To Cash A/c

(Cash paid to petty cashier)

Postage A/c Dr.

Telephone & Telegram A/c Dr.

Conveyance A/c Dr.

Stationary A/c Dr.

Miscellaneous expenses A/c Dr.

To Petty cash A/c

(Petty expenses posted to petty

cash account)

Petty cash A/c Dr.

To Cash A/c

(Cash paid to petty cashier)

 

 

2,000

 

 

 


325

121

349

390

302

 


1,487

 

 

 

2,000

 

 

 

 

 

 

 

1,487

 

 


1,487

Petty Cash Account
Dr. Cr.

Date

Particulars

J.F.

Amount

Rs.

Date

Particulars

J.F.

Amount

Rs.

2005

May 01

 

 

 

 

 

Jun 01

Jun 01



Cash

 

 

 

 

Balance b/d

Cash

 

 

2,000

 

______

2,000

______

513

1,487

2005

May 31
 

May 31

 



Sundries as per petty cash book
Balance c/d

 

 



1,487

 

513

______

2,000

______


Books of Samaria Traders
Postage Account
Dr. Cr.

Date

Particulars

J.F.

Amount

Rs.

Date

Particulars

J.F.

Amount

Rs.

2005

May 31


Petty cash

 


325

       

Telephone and Telegrams Account
            
Dr. Cr.

Date

Particulars

J.F.

Amount

Rs.

Date

Particulars

J.F.

Amount

Rs.

2005

May 31



Petty cash

 



121

       

Conveyance Account
Dr. Cr.

Date

Particulars

J.F.

Amount

Rs.

Date

Particulars

J.F.

Amount

Rs.

2005

May 31



Petty cash

 



349

       

Stationery Account
      
Dr. Cr.

Date

Particulars

J.F.

Amount

Rs.

Date

Particulars

J.F.

Amount

Rs.

2005

May 31



Petty cash

 



390

       

Miscellaneous Expenses Account
Dr. Cr.

Date

Particulars

J.F.

Amount

Rs.

Date

Particulars

J.F.

Amount

Rs.

2005

May 31



Petty cash

 



302

       




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